It is no secret that many of the condo units around the Square One area are rented out to tenants. In fact, in 2013, there were over 1746 recorded lease transactions on the MLS system in the City Centre area alone. This does not take into account any privately conducted leases, or lease renewals. Although leasing is a viable option for some, most tenants aspire to be owners one day. Over the years, we have helped many tenants transition from renting to owning a condo in Mississauga. In this blog post, we will break down the cost relating to renting and owning a condo in downtown Mississauga.

The Cost Of Renting Vs Owning

In the chart below, we compared the monthly carrying costs of an average priced one bedroom condo in downtown Mississauga. Rent is based on market average of $1,450 per month, and owing is based on a purchase price of $260,000, with $52,000 (20%) down, and at a 3.5% fixed rate amortized over 25 years.

The above chart indicates that owning a one bedroom condo, would typically cost about $163 more per month as opposed to renting it.

Building Equity

The next chart uses the same metrics as above, and calculates the amount of equity which would be accumulated over a 5 year term.

The chart indicates that after 5 years, the owner would pay off over $28,000 in principle, while the renter would build $0 equity.

Market Adjustments

Anyone who is currently renting, knows that rent rates have been going up steadily over the years. The chart below, on the left, shows the year to year increase of market rent (the amount landlords charge tenants monthly). The second chart, on the right, predicts the capital appreciation (the amount that the property will appreciate in value) over a 5 year period. In our calculation, we have used a variable of 1% yearly for rental increases, and 2% yearly for market average price increases.

.

Based on historical data, it is safe to assume that a person who is currently paying rent of $1450 per month on their one bedroom condominium in Mississauga, can expect that that amount will increase by around $60 in the next five years. At the same time, a person who is paying off a mortgage for a similar property, would acquire roughly $26,000 in property appreciation over the next five years.

Conclusion

In this blog post we went over the basic costs associated with renting and owning a condo. Based on the figures presented, we saw that owning a condo could cost only $163 more per month than renting it. At the same time, the owner can build equity by paying off their mortgage, and building equity through market appreciation. It’s likely that in less than five years, the owner would have already made back the $52,000 ( $28,000 in principle + $26,000 in capital appreciation) that they have originally put down as a down-payment.

Then why do some people still continue to rent? For some, they are renting because it’s a short term solution and for others it is a temporary solution, in order to save money for a larger down payment.

For anyone who is currently leasing a condo, and is on the fence about buying, I encourage you to check out our rent vs buy calculator. If you are ready to take the next step and see if you qualify, please do contact us and we would be more than happy to help you become a condo owner.

2 Comments

Huge flaw in your argument is that you expect prices to continue to rise. If prices fall just like they did it the 90s, all of the equity would be wiped out. Just because prices had been going up for past decade doesn’t mean that it would continue indefinitely.

Fair point. However, if prices do fall, only those who have to sell will sell. People will need a place to live and rent prices have historically never gone down. If the market does dip I would not be surprised to see rent prices go up even more, making the cost of living in a condo pricey over the long term.

Of course this is all speculation, and nobody has a crystal ball to predict what will really unfold. Time will tell.